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10 Things You Should Know About Buying Fixed Deferred Annuities
*4/16/2008*

1. What is an Annuity?
An annuity is a contract in which an insurance company makes a series of income payments at regular intervals in return for a premium or premiums you have paid. Annuities are often bought for future retirement income. Only an annuity can pay an income that can be guaranteed to last as long as you live. Your money grows tax-deferred as long as you leave it in the annuity.
2. Examine Different Kinds of Annuities
The most common types of annuities are: single or multiple premiums, immediate or deferred and fixed or variable. For a single premium contract, you pay the insurance company only one payment, where as you make a series of payments for a multiple premium. With an immediate annuity, income payments start no later than one year after you pay the premium. The income payments from a deferred annuity often start many years later. Deferred annuities have an accumulation period, which is the time between when you start paying premiums and when income payments start. During the accumulation period of a fixed deferred annuity, your money, less any applicable charges, earns interest at rates set by the insurance company or in a way spelled out in the annuity contract. During the payout period, the amount of each income payment to you is generally set when the payments start and will not change. During the accumulation period of a variable annuity, the insurance company puts your premiums, less any applicable charges, into a separate account. You decide how the company will invest those premiums, depending on how much risk you want to take. During the payout period of a variable annuity, the amount of each income payment to you may be fixed (set at the beginning) or variable (changing with the value of the investments in the separate account.
3. Know How Interest Rates are Set
During the accumulation period, your money, less any applicable charges, earns interest at rates that change from time to time. Usually, what these rates will be is entirely up to the insurance company. The current rate is the rate the company decides to credit to your contract at a particular time. The company will guarantee it will not change rates for a certain time period. The minimum guaranteed interest rate is the lowest rate your annuity will earn. This rate is stated in the contract. Some annuity contracts apply different interest rates to each premium you pay or to premiums you pay during different time periods. Other annuity contracts may have two or more accumulated values that fund different benefit options. These accumulated values may use different interest rates. You get only one of the accumulated values depending on which benefit you choose.
4. Know What Charges May be Subtracted from Your Fixed Deferred Annuity
Most annuities have charges related to the cost of selling or servicing it. These charges may be subtracted directly from the contract value. Ask your agent or company to describe the charges that apply to your annuity. Some examples of charges, fees and taxes are surrender or withdrawal charges, free withdrawal, contract fee, transaction fee, percentage of premium charge and premium tax.
5. Contract Benefits of Fixed Deferred Annuities
Companies may offer various income payment options. You or another person that you name may choose the option. If you choose Life Only, the company pays income for your lifetime. Life Annuity with Period Certain pays income for as long as you live and guarantees to make payments for a set number of years even if you die. If you choose Joint and Survivor, the company pays income as long as either you or your beneficiary lives. In some annuity contracts, the company may pay a death benefit to your beneficiary if you die before the income payments start.
6. Tax Treatment of Annuities
Under current federal law, annuities receive special tax treatment. Income tax on annuities is deferred, which means you are not taxed on the interest your money earns while it stays in the annuity. Tax-deferred accumulation is not the same as tax-free accumulation. An advantage of tax deferral is that the tax bracket you are in when you receive annuity income payments may be lower than the one you are in during the accumulation period. You will also be earning interest on the amount you would have paid in taxes during the accumulation period. Most states’ tax laws on annuities follow the federal law. You should consult a professional tax advisor to discuss your individual tax situation.
7. Take Advantage of the “Free Look” Provision
Many states have laws that give you a set number of days to look at the annuity contract after you buy it. If you decide during that time that you do not want the annuity, you can return the contract and get all your money back. This is often referred to as a free look or right to return period. The free look period should be prominently stated in your contract. Be sure to read your contract carefully during the free look period.
8. Is a Fixed Deferred Annuity Right for You?
You should think about what your goals are for the money you may put into the annuity. You need to think about how much risk you are willing to take with the money as well. Ask yourself the following questions: How much retirement income will you need in addition to what you will get from Social Security and pension, will you need that additional income only for yourself or yourself and others, How long can you leave money in the annuity and does the annuity let you get money when you need it.
9. Some Questions Your Agent Should be Able to Answer
A few questions that you should ask your agent are: Is this a single premium or multiple premium contract, what is the initial interest rate and how long is it guaranteed, what is the guaranteed minimum interest rate, can I get a partial withdrawal without paying surrender or other charges and is there a death benefit.
10. Review Your Contract Carefully
Before you decide to buy an annuity, you should review the contract. Terms and conditions of each annuity contract will vary. Ask the agent and company for an explanation of anything you do not understand. Do this before any free look period ends. Compare information for similar contracts from several companies. Comparing products may help you make a better decision. If you have a specific question or cannot get answers you need from the agent or company, contact the Alabama Department of Insurance at 800-433-3966.

A Rise in Identity Theft Spurs New Type of Insurance
*3/20/2008*

What can you do to prevent Identity Theft?
Taking steps to protect your identity is important. Here are some suggestions:
Avoid carrying your Social Security number and driver’s license number together in your wallet. Shred pre-approved credit card offers and bills before disposing of them. Avoid putting outgoing mail in your home mailbox – place it in a U.S. Postal service mailbox. Be careful using credit cards online. Some consumers have a card they use only for online purchases. Check your credit report on a regular basis. If you see unusual activity, you can investigate promptly by contacting the three credit bureaus: Equifax – www.equifax.com/1-800-525-6285; Experian – www.experian.com/1-888-397-3742; and TransUnion – www.transunion.com/1-800-680-7289.
Can You Insure Against Identity Theft?
If you are a victim of identity theft, it can be very costly to reestablish your credit and identity. Several companies are now offering identity theft insurance, which generally costs between $25 and $60 per year. Identity theft insurance cannot protect you from becoming a victim of identity theft and does not cover direct monetary losses incurred as result of identity theft. Instead, identity theft insurance provides coverage for the cost of reclaiming your financial identity, such as the costs of making phone calls, making copies, mailing documents, taking time off from work without pay (lost wages) and hiring an attorney.
Things To Consider
Find out what the policy limits are. Most identity theft insurance policies have policy limits of $10,000 - $15,000. Find out if there is a deductible. Some policies require you to pay the first $100 - $500 of costs incurred for reclaiming your financial identity. Remember, identity theft insurance does not cover direct monetary losses. If the policy covers lost wages, verify what limits apply and what is required to trigger this coverage. If you are a salaried employee or are required to request vacation time in the event of a work absence associated with reclaiming your financial identity, you may not have unpaid leave and lost wages. If the policy covers legal fees, verify what limits apply and if legal work needs to be pre-approved by the insurer.
Before You Buy
Check to see if your current homeowner insurer includes identity theft insurance as part of your homeowner’s insurance. If not, you may be able to add identity theft insurance to your homeowner’s policy for a small fee or purchase a stand-alone policy from another insurer, bank or credit card company.
As with any insurance product, make sure you understand what you are purchasing and compare the product’s price, coverage and deductibles among multiple insurers.

Life Insurance: Securing Your Family's Financial Future in Case of Unexpected Death
*2/29/2008*

Decide How Much You Need
The first step to purchasing life insurance is to decide how much coverage you need, for how long and what you can afford to pay.
Keep in mind the major reason you buy life insurance is to cover the financial effects of an unexpected or untimely death. Life insurance also can be one of many ways to plan for the future.
Here are some questions to ask before buying:
How much of the family income do I provide? If I were to die, how would my survivors, especially my children, get by? Does anyone else depend on me financially, such as a parent, grandparent, brother or sister? Do I have children for whom I'd like to set aside money to finish their education in the event of my death? How will my family pay final expenses and repay debts after my death? Do I have family members or organizations to whom I would like to leave money? Will there be estate taxes to pay after my death? How will inflation affect future needs?
When considering your coverage, be sure to factor in life insurance you currently have, including group insurance where you work or veteran's insurance. Don't forget to include benefits from Social Security or survivor's benefits from a pension plan.
The Right Kind of Policy
All policies are not the same. Once you have determined how much coverage you need, it's time to find out more about the types of policies available. There are two basic types of life insurance: term insurance and cash value insurance.
A term life insurance policy covers you for a specific number of years, or term, such as 10, 20 or 30 years. It pays a death benefit only if you die in the insured term. Term insurance generally offers the largest insurance protection for your premium dollar. A term life policy has lower premiums than a cash value policy of the same amount; however, it does not build up cash values that can be used in the future.
For a cash value life insurance policy, premiums are higher at the beginning than they would be for the same amount of term insurance. With a cash value life insurance policy, the part of the premium that is not used for the cost of insurance is invested by the company and builds up cash value. You may borrow against the policy's value, use the cash value to increase your income in retirement or even help pay for needs, such as a child's tuition, without canceling the policy. Cash value life insurance may be one of several types, such as whole life, universal life or variable life.
Before You Buy
After you have decided which kind of life insurance is best for you, compare similar policies from different companies to find which one is likely to give you the best value for your money. A simple comparison of the premiums is not enough. There are other things to consider. For example:
Do premiums or benefits vary from year to year? How much do the benefits build up in the policy? What part of the premium or benefits is not guaranteed? What is the effect of interest on money paid and received at different times on the policy?
Remember that no one company offers the lowest cost at all ages for all kinds and amounts of insurance. You should also consider other factors:
How quickly does the cash value grow? Some policies have low cash values in the early years that build quickly later on. Other policies have a more level cash value build-up. A year-by-year display of values and benefits can be helpful. Your insurance agent or company will give you a policy summary or an illustration that shows benefits and premiums for selected years. Be sure to ask questions to help ensure you fully understand the policy summary. Are there special policy features that particularly suit your needs? Do you understand how non-guaranteed values are determined? Ask your agent how the policy is affected by interest rate changes, changes in mortality (deaths), profits of the company, changes in the value of the investments supporting the policy, and changes in other key factors.
More Information on Life Insurance
For more information about selecting the right life insurance policy for your family, go to www.InsureUonline.org. The NAIC's free, downloadable guide to buying life insurance can be found at www.naic.org/consumer_home.htm.
Stop. Call. Confirm.
Before buying, be sure you are dealing with a reputable insurance agent and company. The Alabama Department of Insurance recommends you STOP before signing anything or writing a check; CALL the Alabama Department of Insurance at 334-269-3550; CONFIRM the company offering insurance is legitimate and licensed in Alabama.